Value Line has initiated coverage of LPL Financial Holdings, Inc. (LPLA) in its flagship product, The Value Line Investment Survey. This company is the nation's largest independent broker-dealer, a top custodian for registered investment advisors, and a leading independent consultant to retirement plans.

The company provides an integrated platform of brokerage and investment advisory services to more than 13,600 independent financial advisors and financial professionals at more than 700 institutions throughout the United States. LPL enables them to provide retail investors with objective financial advice through a lower-risk model. The business also supports approximately 4,500 financial advisors who are affiliated and licensed with insurance companies through customized clearing services, advisory platforms, and technology solutions.

In addition, the company maintains a diverse client base via its subsidiary companies. For example, LPL Financial LLC is a clearing broker-dealer and an investment advisor that primarily transacts business as an agent for its advisors on behalf of their clients through a broad array of financial products and services. Fortigent Holdings Company, Inc. and its subsidiaries is a leading provider of solutions and consulting services to RIAs, as well as banks and trust companies that serve high-net-worth clients. Finally, The Private Trust Company, N.A. solely manages trusts for high-net-worth clients. Through its advisors, LPL is also one of the largest distributors of financial products in the United States, with over $73 billion in sales of mutual funds, annuities and advisory services. Presently, it has 3,185 employees with primary offices in Boston, Charlotte, and San Diego.

LPL Financial Holdings offers a unique value proposition to independent financial advisors and financial institutions. This value proposition is built upon the delivery of its services through scale, independence, and integrated technology. The sum of these factors is difficult to find all under one roof within this particular sector. As a result, the company does not seem to possess any direct competition that offers a similar business model. For example, because LPL does not have any proprietary financially-engineered products, it does not view firms that manufacture asset management products and other financial offerings as direct competitors.

Consequently, the company competes to attract and retain experienced and productive advisors with a variety of financial firms. Within the independent channel, the industry is highly fragmented, comprised primarily of small regional firms that rely on third-party custodians and technology providers to support their operations. The captive wirehouse channel tends to consist of large nationwide firms with multiple lines of business that have a focus on the fiercely competitive high-net-worth investor market. Peers in this channel include Morgan Stanley (MS), Merrill Lynch, Pierce, Fenner, & Smith Incorporated, UBS Financial Services Inc. (UBS), and Wells Fargo (WFC). The competition for advisors also includes regional firms, such as Edward D. Jones & Co., L.P. and Raymond James Financial Services, Inc. (RJF), who are licensed directly with the SEC and not through a broker-dealer.

Those players that do not offer a complete clearing solution for advisors are frequently supported by third-party clearing and custody oriented firms. Pershing LLC, a subsidiary of Bank of New York Mellon (BK), National Financial Services LLC, a subsidiary of Fidelity Investments (FNF), and JPMorgan Clearing Corp., a subsidiary of JPMorgan Chase & Co. (JPM Free JPMorgan Stock Report), offer custodial services and technology solutions to independent firms and RIAs who are not self-clearing. These clearing firms and their affiliates also offer an array of service, technology, and reporting tools. Further, businesses such as Albridge Solutions, a subsidiary of Bank of New York Mellon, Advent Software, Inc., Envestnet, Inc., and Morningstar, Inc. (MORN), provide an array of research, analytics, and reporting solutions.

Finally, LPL’s advisors square off for clients with financial advisors of brokerage firms, banks, insurance companies, asset management, and investment advisory firms. In addition, they also go head-to-head with a number of firms offering direct to investor on-line financial services and discount brokerage services, such as Charles Schwab & Co. (SCHW) and Fidelity Brokerage Services LLC.

LPL has experienced solid revenue growth of late, as it has taken advantage of improved advisory and brokerage asset growth. Looking ahead, it seems the company is well-poised to capitalize on an increased need for financial advisory services, particularly within the aging Baby Boomer segment. These offerings ought to pave the way for higher fee-based income over future quarters, bolstering profitability accordingly. Moreover, the stock’s healthy prospects and modest dividend yield provide subscribers with decent total return potential over the long haul.

All told, subscribers interested in this diverse financial services provider are advised to consult Value Line’s quarterly reports for LPL Financial Holdings, Inc., as well as any supplemental reports and relevant articles as important news items arise. 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.